Dabur India has several fires to fight
Dabur India is the latest addition to a growing list of packaged consumer goods companies reporting low sales growth in the December quarter
Dabur India Ltd is the latest addition to a growing list of packaged consumer goods companies reporting low sales growth in the December quarter. Sales rose by a mere 2.4% over a year ago, partly due to weak consumer demand, but also other factors. The political crisis in Nepal has hit supplies from its juices factory there, resulting in lost sales of about ₹ 100 crore. A delayed winter further affected sales of seasonal products in its portfolio.
The good news is that new sources of juice supply have been put in place, and sales are expected to be normal in the current quarter. In the domestic business, Dabur’s oral care segment did well with sales rising by 10.5%, doing better than market leader Colgate-Palmolive (India) Ltd.
While sales of the company’s skincare products did well, those of haircare products sales suffered due to price cuts by competitors in the shampoo segment. Sales of health supplements declined by 7.1%, partly due to the delayed onset of winter and stiff competition. Sales of its food business fell by 23.7%, mainly due to lost sales of juices.
Dabur’s international business did better, with the Namaste business recovering. International sales growth rose by 14.8% and by 13.3% in constant currency terms.
Although sales growth was low, the company’s input costs declined substantially by 6.6%. That led to a large jump in gross margins, which was used to pay for higher advertising and promotional expenses and higher employee and other expenses. Operating profit rose by 7.5% from a year ago, and while margins rose over a year ago, they declined sequentially.
Dabur’s net profit growth of 12% is also in line with slower net profit growth being reported by its peers. The company expects slow growth to persist for a few more quarters.
The management said in a conference call that it will attempt to sell more premium products to derive better sales and profit growth. Whether that strategy succeeds will be visible in the longer run. In the more immediate future, its performance will depend on how the existing product portfolio does.
Its foods business should recover from the current quarter. The onset of winter in the current quarter too should see associated product segments benefit. Low input costs and weak rural demand, however, mean that sales growth is likely to remain subdued.
Dabur’s efforts to invest in growing its business may also put some strain on profit margins in this environment. Its shares gained by 2.62% on Thursday after the results were announced, although they are down by 12% in January so far. Investors should heed the management’s cautious outlook for the near to medium term.
The writer does not own shares in the above-mentioned companies.
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